Introduction to Binary Options Trading

Binary options trading is a phrase I’ve been hearing a lot lately and when I finally decided to look into it further, I soon understood what all the hype was about. Growing everyday but still often misunderstood, I think it is time to shine some light on exactly what binary option trading is all about.

What is it?

Listed as an exotic option, binary options are in fact a simple to use fixed-return option (FRO) that provide access to stocks, indexes, foreign exchange and commodities. The options each have an expiry date and a strike price; all the trader has to do is bet on the direction of the market in relation to the price at the time of the expiry. If you think it will go above the strike price, you purchase a ‘call’, while those who believe it will fall below the strike price will buy a ‘put’. If correct, you win a fixed return regardless of how much it has moved. If incorrect, you lose a fixed amount of your investment. Win or lose; it’s as simple as that.

Where can you trade binary options?

One of the biggest operators in binary options trading is ‘anyoption’. Launched in 2008, they were the first of their kind and to this day, remain one of the best. With their experience over other brokers, they are able to offer hundreds of assets for their customers to trade and though binary options can be very high risk, ‘anyoption’ are regulated by the financial regulator and offer a 15% return on your deposit should you lose out; greatly reducing the risk involved for traders. With hundreds of thousands of people already using their services and a user-friendly website and mobile application, ‘anyoption’ is incredibly accessible even for beginners – they recently launched a site dedicated to the UK market that offers informative articles about how to understand and trade binary options.

What are the risks and rewards?

Binary options have a number of advantages. The trader need only make one simple decision; is the asset going to go up or down? This makes them easy to understand, with the potential risk and reward clear from the offset. There is no concern regarding liquidity, as the trader never actually owns the asset and there are generally no fees relating to commissions. The market has also seen a major boost in popularity of late and more services have become available to aid traders in their decision making.

Like all trading opportunities however, binary options have their drawbacks, the first and foremost being that the risk involved is always greater than the potential reward. This means that to successfully trade in binary options, the trader must be correct on a very high percentage of their gambles in order to cover any loses. Once invested, your money cannot be withdrawn until the expiry date and being an over-the-counter (OTC) market, it is hard to regulate – though rare, dishonest activity does exist.

Summary

With their very own set of advantages and disadvantages, binary options trading offers a new and exciting alternative to hedging and speculating. So long as users pay close attention to the risks involved, I anticipate that this market will continue to grow to new heights.

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Julie Cheung / Finance Girl

Manchester blogger with an interest in personal finance, fitness and food. My posts revolve around saving/making money, things to do in and out of Manchester, and places to eat on a budget - but not always :-)